Ambuja profit down 35% from weak cement demand

Lower realisation, increased depreciation and District Mineral Fund provisions impacted profits

Ambuja Cements’ performance for the quarter ending September was no different from its Holcim group peer, ACC. The impact of weak cement demand and realisation saw the company’s net profit come at Rs 154 crore, a decline of 35.6 per cent over the same period last year. ACC had also seen its net profit decline almost 43 per cent year-on-year. Bloomberg Consensus estimates had pegged Ambuja’s net profit at Rs 190 crore, but the actual came much lower.

The company’s sales volume at 4.82 million tonnes grew 3.2 per cent over the year ago quarter, but with realisation, declining 6.9 per cent net sales at Rs 2,095 crore, dipped 4.3 per cent year-on-year. These were also lower than Bloomberg estimate of Rs 2,145 crore.

The impact of weak realisations was prominently evident on operating performance as the company also made provisions of Rs 40 crore towards contribution to District Mineral foundations and National Mineral Exploration Trust, according to Mines and Mineral Amendment Act 2015.

Thus, operating  earnings before interest, tax, depreciation and amortisation (EBITDA) came at Rs 310 crore, a fall of 21.1 per cent year-on-year and lower than Rs 325 crore, estimated by Bloomberg. Margins at 14.8 per cent, consequently, were much lower than 17.96 per cent seen in the year-ago quarter. While operating performance suffered, additional depreciation charge of Rs 28 crore on implementation of Schedule II of the Companies Act, 2013, further impacted the bottom-line.

Being a regional player, the company’s EBITDA per tonne at Rs 643 was better than Rs 448 for ACC, which is a pan-India player.

However, UltraTech’s blended EBITDA per tonne of close to Rs 847 justifies the valuation premium UltraTech commands on the bourses.

During the quarter, Ambuja commissioned a waste recovery system of 6.5 Mw at its Rabriyawas unit in Rajasthan.

While the September’15 quarter was expected to be weak, with the results lower than expectations, it may put some pressure on the stock price of Ambuja Cements that closed at Rs 208.75 on Wednesday. The results were declared post market hours.

Moving forward, the company remains optimistic on construction activities picking up post monsoon. The company’s release said that long-term outlook for cement demand remains positive considering government’s focus on housing, concrete roads, smart cities and infrastructure development. Ambuja would also continue to focus on improving operating efficiencies.

Analysts also remain optimistic on demand recovery given than price hikes have already been taken by cement makers in North India. Ambuja is a regional player catering to North West and Eastern India. The consensus target price as per analysts polled on Bloomberg stands at Rs 231 indicating towards their positive view on the company.

Meanwhile, the acquisition of 50.01 per cent stake by Ambuja Cements in ACC has already been approved by Hon’ble High Courts of New Delhi and Gujarat. The transaction recommended by the Foreign Investment Promotion Board (FIPB) is awaiting approval of the Cabinet Committee of Economic Affairs, said the company release. Once through Ambuja will become a much larger entity with pan India presence.